A judge of the New York State Supreme Court has held that allegations of failure to collect and remit sales tax were extended by tolling agreements between the taxpayer and the Department of Taxation and Finance, and therefore were also timely when asserted under the False Claims Act. People of the State of New York v. Sprint Communications, Inc., f/k/a Sprint Nextel Corp., Index No. 103917/2011 (Sup. Ct. N.Y. Cnty., May 4, 2016).
Background. In 2011, the New York State Attorney General brought an action against Sprint Nextel Corp. (“Sprint”), alleging that Sprint had fraudulently failed to collect and remit sales tax on charges for certain bundled wireless telephone services. In October 2015, the Court of Appeals denied Sprint’s motion to dismiss the case, noting that for purposes of the motion to dismiss, the court was required to accept as true all facts alleged in the complaint, and holding that the Attorney General had stated a cause of action that should proceed to trial. Sprint’s petition for certiorari to the United States Supreme Court was denied. People of the State of New York et al. v. Sprint Nextel Corp., 26 N.Y.3d 98 (2015), cert. denied, No. 15-1041 (U.S., May 31, 2016).
In 2013, the court had dismissed the claims against Sprint concerning alleged sales tax obligations that arose prior to March 31, 2008 on the grounds that those claims were barred by the three-year statute of limitations, since the complaint had been filed on March 31, 2011. No tolling agreements had been submitted to the court at that time. An amended complaint was filed in November 2015, attaching tolling agreements that had been entered into between the Department and Sprint. Sprint moved to dismiss the claims as time-barred, claiming the tolling agreements were signed only by the Department, not the Attorney General; that they only apply to “determining” the tax due, which is the term used in the Tax Law to refer to the Department’s audit process; and that they only extended the period for the “assessment” of additional tax, not the period for bringing a civil enforcement action.
The trial court judge rejected each of these arguments. He found, first, that the agreements did not limit the Department’s ability to recommend to the Attorney General that assessments be asserted in a civil complaint, to be determined by a court rather than an administrative tribunal, and that there is nothing in the agreements that restricts the authority of the Department to “to choose to have a court determine the amount of tax that is owed to the State.” Since the Attorney General is the State’s lawyer, acting on its behalf, the Attorney General was held to be entitled to enforce the terms of the agreements between Sprint and an authorized Department official. The judge also found that “[t]his is not a case where Sprint is likely to have fears that as time passes . . . the difficulty of defending its interests will increase,” because “Sprint took that ‘difficulty’ into account” at the time it signed the tolling agreements.